Key Documents

halifax health lawsuit

Emails show Halifax, vendor planned deal months before bids went out

Published: Saturday, September 21, 2013 at 7:54 p.m.

Last Modified: Saturday, September 21, 2013 at 9:34 p.m.

DAYTONA BEACH — Halifax Health’s chief purchasing agent and an entrepreneur leading a startup company had a close working relationship for months before an invitation to bid on the public hospital’s spinal implant business was formally issued, according to emails obtained by The News-Journal.

The hospital released the documents in response to the newspaper’s public records request and a lawsuit filed by a competing vendor alleging Halifax Health improperly steered the purchasing process toward a startup called Cognitive Kinetics. Harold Hubka, an attorney for Halifax Health, acknowledged the hospital unknowingly violated its own bidding rules.

Geoffrey Smith, an attorney for Spinal Resources Inc., the company that filed suit, said the email records show the hospital’s purchasing process was tainted and rife with favoritism. The emails were exchanged between Bill Christy, CEO of Cognitive Kinetics, and Tom Beall, Halifax Health’s director of supply chain management.

“It’s very difficult to believe there was anything other than a clear bias,” Smith said. “There’s much more than a professional relationship. These are people who know each other and know each other well. We plan to dig into that.”

Hubka said that although Beall and Christy have been friends for more than two decades, they were simply trying to save the hospital system money by eliminating middle-man vendors that had been adding to supply costs for years.

“The net result is you can have a screw that costs $800,” he said of the old system. “It’s a great business if you can get into it, but Halifax is under pressure to cut costs. It’s one of the reasons why our health system is the most expensive in the world.”

The News-Journal attempted to obtain records that would reveal pricing comparisons, but the hospital denied the request, citing an exemption in public records laws that considers pricing a trade secret that is not subject to public review.

Records show Christy’s company stood to gain from the hospital’s business, though. In one document that never was acted upon, Halifax Health would have acquired an 85 percent stake in Cognitive Kinetics in exchange for $1.15 million. A contract cover sheet shows the hospital bought $461,448.65 in spinal implants from Cognitive Kinetics, a purchase that was never put out to bid.

Attorney: $500k saved

Beall and Christy exchanged their first email on Feb. 11 — about two weeks before Christy incorporated Cognitive Kinetics and months before an invitation to bid on spinal implant instrumentation was issued July 1. Christy has led several medical device companies over the past two decades.

Over ensuing months, Beall and Christy regularly exchanged emails and shared emails written by other vendors. Beall did not return a phone message seeking comment, and a hospital spokeswoman said he would not comment because of the pending litigation. Christy did not respond to a request for comment.

In the past, spinal implant distributors worked directly with the surgeons who selected their preferred companies.

Distributors acted as intermediaries between medical device manufacturers and hospitals, taking a commission on sales.

Spinal Resources kept its surgical implants and instruments at the hospital at no charge, and surgeons only purchased the implants they needed based on a negotiated price.

A sales representative was present in the operating room and provided technical assistance for their products.

Halifax Health wanted to lower its price, Hubka said, and driving volume to a preferred vendor — Christy’s company — would result in more favorable pricing for the hospital. The hospital calculated such an arrangement would save about $500,000 annually in supply costs.

“This deal wasn’t some illegal deal with kickbacks,” Hubka said. “This is a deal where the hospital paid far less.”

‘Never Saw Us Coming’

The emails obtained by The News-Journal show others wanted in on the business.

A sales representative from Medtronic emailed the hospital on June 10, writing that he had heard Halifax Health was looking to collaborate with a company for a sole-source agreement. He wanted to meet with Beall and his staff to discuss what the company could offer.

Beall forwarded the email to Christy, writing “thought you might find this interesting.”

Christy wrote in response, “sole source??? heheheheh how about ‘the source.’ Congrats they never saw us coming:):)”

Three days later, another spine vendor —SpineNet LLC — made its pitch to Beall in an email. In response to that email, Christy wrote, “word is out.”

If the hospital wanted to lower its costs, it should have opened the process to everyone, said Smith, the Spinal Resources attorney.

“The hospital has a fair mechanism to address concerns about price and that is the competitive bidding process,” he said.

The enabling act governing the public hospital’s procedures requires purchases over $10,000 to be subject to competitive bidding.

But hospital officials were under the impression they could buy implants without going through the competitive bidding process, Hubka said. An exception in the enabling act allows the hospital to forgo bidding for implants if doing so “could adversely affect patient care or could cause the patient to elect to have the surgery performed elsewhere.”

That exception wouldn’t apply, though, if the hospital made a bulk purchase of implants in excess of $10,000, Hubka said.

None of the emails or previously released public records mentions Lesa France Kennedy, CEO of International Speedway Corp. and a member of NASCAR’s board of directors, who has a personal relationship with Christy and whose family has made significant contributions to the hospital. Spinal Resources alleges in its suit the hospital was influenced by Christy’s relationship with “one of the hospital’s largest donors.” Christy has said she was never involved in the process.

France Kennedy, through a spokesman, has said she “knows nothing about the particulars of the complaint.”

Another Bid attempt

The hospital is starting the bidding process anew. This time around it is enlisting Aspen Healthcare Metrics, a hospital consulting company, to score the bids. Spinal Resources and all other vendors are free to submit a proposal, Hubka said.

But Smith said Spinal Resources still has doubts about the process.

The company wants a Volusia County judge to invalidate the hospital’s purchase of products from Cognitive Kinetics, allow Spinal Resources to continue doing business at Halifax Health and ensure business is provided to the lowest bidder while giving the surgeon the ability to choose the best product for his or her patient.

A judge is expected to hear additional testimony in late October or November.

<p><span class="Dateline">DAYTONA BEACH — </span>Halifax Health’s chief purchasing agent and an entrepreneur leading a startup company had a close working relationship for months before an invitation to bid on the public hospital’s spinal implant business was formally issued, according to emails obtained by The News-Journal. </p><p>The hospital released the documents in response to the newspaper’s public records request and a lawsuit filed by a competing vendor alleging Halifax Health improperly steered the purchasing process toward a startup called Cognitive Kinetics. Harold Hubka, an attorney for Halifax Health, acknowledged the hospital unknowingly violated its own bidding rules.</p><p>Geoffrey Smith, an attorney for Spinal Resources Inc., the company that filed suit, said the email records show the hospital’s purchasing process was tainted and rife with favoritism. The emails were exchanged between Bill Christy, CEO of Cognitive Kinetics, and Tom Beall, Halifax Health’s director of supply chain management. </p><p>“It’s very difficult to believe there was anything other than a clear bias,” Smith said. “There’s much more than a professional relationship. These are people who know each other and know each other well. We plan to dig into that.” </p><p>Hubka said that although Beall and Christy have been friends for more than two decades, they were simply trying to save the hospital system money by eliminating middle-man vendors that had been adding to supply costs for years. </p><p>“The net result is you can have a screw that costs $800,” he said of the old system. “It’s a great business if you can get into it, but Halifax is under pressure to cut costs. It’s one of the reasons why our health system is the most expensive in the world.” </p><p>The News-Journal attempted to obtain records that would reveal pricing comparisons, but the hospital denied the request, citing an exemption in public records laws that considers pricing a trade secret that is not subject to public review. </p><p>Records show Christy’s company stood to gain from the hospital’s business, though. In one document that never was acted upon, Halifax Health would have acquired an 85 percent stake in Cognitive Kinetics in exchange for $1.15 million. A contract cover sheet shows the hospital bought $461,448.65 in spinal implants from Cognitive Kinetics, a purchase that was never put out to bid.</p><h3>Attorney: $500k saved</h3>
<p>Beall and Christy exchanged their first email on Feb. 11 — about two weeks before Christy incorporated Cognitive Kinetics and months before an invitation to bid on spinal implant instrumentation was issued July 1. Christy has led several medical device companies over the past two decades. </p><p>Over ensuing months, Beall and Christy regularly exchanged emails and shared emails written by other vendors. Beall did not return a phone message seeking comment, and a hospital spokeswoman said he would not comment because of the pending litigation. Christy did not respond to a request for comment. </p><p>In the past, spinal implant distributors worked directly with the surgeons who selected their preferred companies. </p><p>Distributors acted as intermediaries between medical device manufacturers and hospitals, taking a commission on sales. </p><p>Spinal Resources kept its surgical implants and instruments at the hospital at no charge, and surgeons only purchased the implants they needed based on a negotiated price. </p><p>A sales representative was present in the operating room and provided technical assistance for their products. </p><p>Halifax Health wanted to lower its price, Hubka said, and driving volume to a preferred vendor — Christy’s company — would result in more favorable pricing for the hospital. The hospital calculated such an arrangement would save about $500,000 annually in supply costs.</p><p>“This deal wasn’t some illegal deal with kickbacks,” Hubka said. “This is a deal where the hospital paid far less.”</p><h3>‘Never Saw Us Coming’</h3>
<p>The emails obtained by The News-Journal show others wanted in on the business. </p><p>A sales representative from Medtronic emailed the hospital on June 10, writing that he had heard Halifax Health was looking to collaborate with a company for a sole-source agreement. He wanted to meet with Beall and his staff to discuss what the company could offer. </p><p>Beall forwarded the email to Christy, writing “thought you might find this interesting.” </p><p>Christy wrote in response, “sole source??? heheheheh how about ‘the source.’ Congrats they never saw us coming:):)” </p><p>Three days later, another spine vendor —SpineNet LLC — made its pitch to Beall in an email. In response to that email, Christy wrote, “word is out.” </p><p>If the hospital wanted to lower its costs, it should have opened the process to everyone, said Smith, the Spinal Resources attorney. </p><p>“The hospital has a fair mechanism to address concerns about price and that is the competitive bidding process,” he said. </p><p>The enabling act governing the public hospital’s procedures requires purchases over $10,000 to be subject to competitive bidding. </p><p>But hospital officials were under the impression they could buy implants without going through the competitive bidding process, Hubka said. An exception in the enabling act allows the hospital to forgo bidding for implants if doing so “could adversely affect patient care or could cause the patient to elect to have the surgery performed elsewhere.”</p><p>That exception wouldn’t apply, though, if the hospital made a bulk purchase of implants in excess of $10,000, Hubka said. </p><p>None of the emails or previously released public records mentions Lesa France Kennedy, CEO of International Speedway Corp. and a member of NASCAR’s board of directors, who has a personal relationship with Christy and whose family has made significant contributions to the hospital. Spinal Resources alleges in its suit the hospital was influenced by Christy’s relationship with “one of the hospital’s largest donors.” Christy has said she was never involved in the process. </p><p>France Kennedy, through a spokesman, has said she “knows nothing about the particulars of the complaint.”</p><h3>Another Bid attempt</h3>
<p>The hospital is starting the bidding process anew. This time around it is enlisting Aspen Healthcare Metrics, a hospital consulting company, to score the bids. Spinal Resources and all other vendors are free to submit a proposal, Hubka said. </p><p>But Smith said Spinal Resources still has doubts about the process. </p><p>The company wants a Volusia County judge to invalidate the hospital’s purchase of products from Cognitive Kinetics, allow Spinal Resources to continue doing business at Halifax Health and ensure business is provided to the lowest bidder while giving the surgeon the ability to choose the best product for his or her patient. </p><p>A judge is expected to hear additional testimony in late October or November.</p>